Kamala Harris' digital dollar vision: A new era of financial inclusion?

Ting Shen/Bloomberg

It's likely that very few people have heard of the U.S. Digital Service. But Kamala Harris' push to expand the agency suggests that a potential Harris presidency could lay the groundwork for a central bank digital currency. 

In 2020, then-Senator Harris proposed an unsuccessful 400% increase in funding for the USDS, an agency that still has fewer than 200 people. Harris said the USDS could play a role in improving government disbursements for disaster relief and other purposes such as pandemic stimulus payments. 

"One of the issues that is up for discussion with digital money is: It could give the Federal Reserve more power," said David Bieri, an associate professor of urban affairs at Virginia Tech University. "The link that Harris may make is to emphasize the inclusion concept. If the Fed were to have a digital dollar it could benefit marginalized segments." 

While the Obama Administration created the USDS to improve the technology that underpinned the Affordable Care Act, the USDS' work provided early technology that can power a digital dollar, which remains in limbo in the U.S. as CBDC projects advance in dozens of other countries.

CBDCs are designed to streamline payments that involve a central bank, with the goal of expanding access to financial services or speeding payment processing. CBDCs can also serve as an alternative to private digital assets, such as stablecoins or other forms of cryptocurrency. In the U.S., CBDCs have faced controversy over the economic impact on banks, uncertainty over use cases, and a lack of clarity over the political path required to approve a digital dollar. 

"The argument from the conservative point of view is that digital currencies could disintermediate the banking industry," Bieri said. "It would give the Federal Reserve more control."  

The battle over a CBDC in the U.S. will play out against the backdrop of the 2024 election, which will include clashing philosophies over the role of government in regulating and enabling financial services. Harris is the likely Democratic nominee following Joe Biden's announcement that he would not seek a second term. 

Donald Trump has likened CBDCs  to "government tyranny." Other conservatives such as Florida Governor Ron Desantis have expressed opposition to CBDCs, and some banks are concerned that a digital dollar could cause consumers to withdraw funds from bank accounts. President Biden has pushed for work on a CBDC as part of a broader government effort to build policies for digital assets, but has not taken a strong stand on the issue.

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Harris could use the power of the presidency to advocate publicly for a CBDC and lobby members of Congress and regulators for approval. Pushing for a digital dollar could also be a way for Harris to forge a distinct path from Biden on financial services issues.  

If Harris becomes president in January, there are reasons to think the U.S. will issue a CBDC soon, according to Robert Hockett, a law professor at Cornell University. Harris' push to increase the funding of the USDS puts her on record as supporting an initiative that could lead to a digital dollar. Hockett, who worked on a pandemic-era digital currency project tied to the USDC, said the USDC is capable of converting TreasuryDirect accounts into a system of peer-to-peer digital wallets. 

"Such a system could serve as a public option for digital banking and payments for all Americans, eliminating the problems of inefficient clearing and the plight of the unbanked in a single stroke," Hockett said. "Since the Treasury would have to coordinate any such system with Fed monetary operations, a digital Treasury dollar would amount to a CBDC."

Harris is from the San Francisco Bay Area and has long been a proponent of technological innovation, according to Susan Lindeque, CEO of Avestix, a financial services firm specializing in technology-focused investment products. As vice president, it appears Harris tempered that support because Biden took a more cautious approach to digital assets, Lindeque said.

"However, should Harris's bid for the White House pick up speed, it's easy to imagine her coming out more aggressively in favor of innovations such as a digital dollar, which could help counter [GOP Vice Presidential candidate] J.D. Vance's [ties to Silicon Valley]," Lindeque said. 

As vice president, Harris in 2023 led the Women in the Sustainable Economy (WISE) Initiative, which bolstered economic empowerment for women. WISE, a $900 million public/private partnership program, focuses on increasing the number of women who start technology-focused businesses and women enrollment in STEM programs at universities. It also attempts to address the digital divide in gender. Participants in WISE include Citigroup, which raised and managed $130 million in local currency financing in Kenya to expand access to solar energy. 

Another participant, Mastercard, has invested $9 million in Pakistan, Peru and Vietnam through WISE and the Strive Women Initiative. Mastercard's project reached 6 million entrepreneurs, mostly women, who accessed financial and payment technology through the program. And Visa has invested $52 million through WISE over the past three years to finance about 1.4 million small businesses globally. Visa network also made a $3 million grant to the Climate Gender Equity Fund via its WISE participation. 

"So it's also safe to assume Harris could also encourage more women entrepreneurs in tech," Lindeque said.